Market Analysis: Angie Setzer

Podcast

Lack luster exports churned with South American weather before traders began treading water in anticipation of two major reports released during the final session. For the week, March wheat lost a dime while the nearby corn contract fell a nickel. The realities of USDA reports and Argentine weather coupled with increased Brazilian yields dropped the March soybean contract a dime. March meal declined $4.90 per ton. March cotton stretched higher by $3.67 per hundred weight. Over in the dairy parlor, February Class III milk futures soured 38 cents. Livestock had a mixed week. The February live cattle contract finished $1.87 lower struggling to recover from last week’s losses. Nearby feeders put on 67 cents. The February lean hog contract see-sawed through a $3 week gaining back 15 cents. The U.S. dollar index went back into a dive as it ticked 95 points lower. Cold weather helped crude oil cap a 3-week run over $60 as the February contract pumped $2.86 per barrel higher. COMEX Gold poured on an additional $12.60 per ounce. And the Goldman Sachs Commodity Index ratcheted just over 10 points higher to close at 443.70

Yeager: Here now to lend us her insight on these and other trends is one of our regular market analysts, Angie Setzer. And in case you want to go over things again, you can download or listen to our Market Analysis and Market Plus podcasts online anytime at iptv.org/mtom. Angie Setzer, welcome back to the table.

Setzer: Thanks for having me.

Yeager: Too bad there's nothing to talk about this week. Thanks for making the trip. We'll see you next time.

Setzer: I'm supposed to shrug and say, see ya later, is what I was advised.

Yeager: Exactly, if anything but that. Now, we're going to have a big discussion about the USDA report that came out on Friday. But let's give people just a little bit of context on why we're going to spend so much time on that. And that goes to one of the Twitter followers. We thank you so much. In fat, we had two pages of Twitter questions and Facebook posts. So thank you very much. We're going to start with Nathan in Fort Recovery, Ohio. And he's asking, first he wants to address some of the big names cutting the report down as useless. We won't name names. If the numbers are so fake, why does almost everyone put up a yield guess and everyone glue their eyes to computer screens at the release?

Setzer: That's the thing, the numbers aren't fake, they really aren't. There's no other source of information as comprehensive as what the USDA is. It's easy to say we wish we didn't have these reports, especially when they cause negative market impact. But we're not too far removed from the October that never happened where the government was shut down, we had no October report and just sat and kind of languished side to side. Of course we're doing that right now it seems with market no matter what kind of information you get, we aren't necessarily moving dramatically one way or the other. But the fact is, is the USDA compiles information, they do it the best way they know how, they do it, like I said they're the most comprehensive and I would hate to see if we were to remove them and we would have to rely on the private estimates that we've seen because all you have to do is look at the trade range in guesses prior to a report to get a feel for what kind of wide ideas we would have about what is actually out there. And based on where the cash market is right now, basis spreads, things of that nature, the numbers that the USDA are putting out are relatively accurate whether we want to put them down to the 10th of a percentage point or not.

Yeager: Well, let's get into some of those. Let's talk about wheat right off the bat here, Angie. They were off 12 and three-quarter cents just today for the week. They had been relatively flat. Why?

Setzer: We've actually seen somewhat of a recovery in wheat simply because we were anticipating a significant reduction in wheat acreage. We were expecting to see the lowest winter wheat acreage on record. I was also in that club that I thought we would see that. The USDA came out today and said, nope, it's not. We're barely off from a year ago. We've seen some reasonable increases in areas we thought we would see reductions winter wheat wise. So we have that. Ending stocks were actually raised slightly as well. They reduced exports and feed usage slightly in the report. Exports were, they were offset, they increased soft exports and decreased hard. But in any event, you saw a reduction in feed usage. And so it made for higher carryout and an increase in ending stocks that no one was really anticipating to see unfortunately. So wheat kind of got a double whammy. I went into the report thinking that would be the market that would save us and the USDA told me to go sit down in the corner and think about what I had said.

Yeager: Right, watch your language when you do that. Up or down? Can this thing go much lower real quick?

Setzer: To me I think we've found support, it could try to test that $4 mark on the front month but it seems to be gravitating towards the $4.20 in Chicago.

Yeager: Alright, another question, you wrote @goddessofgrain. You can find us @MarkettoMarket. And Angie, they were asking, this is Andrew in Nebraska. And this is a question I think many people have. And he is asking, we have record on-farm stocks laying around and total is the highest since '89, stocks to usage highest since '04, '05. If you don't have much sold but need to move bags by March what do you do?

Setzer: Time is of the essence. And so if you look at quarterly stocks today that were released from December 1st you saw that most areas, except for Iowa and Michigan, actually have more grain on hand or similar amounts to what they had a year ago. So to me I think you can almost anticipate the same things to happen in basis. Basis is a function of local supply and demand. So of course if your supply is greater than your demand, which we know it is because we have 2.477 billion bushels of corn leftover at the end of this marketing year, you want to be looking at selling before your neighbor is selling. There's a lot of conversation that oh well my local ethanol plant is pulling in piles or something of that nature. Obviously they really need corn. Well true, a lot of farmers have held back. We have the highest amount of corn on loan that we've had since 2008, which is the inception of those numbers being released. So guys or folks or farmers out there have found a way to cover their cash flow needs in the short-term but eventually that grain is going to have to move and sometimes being in front of that freight train is not necessarily a negative thing when it comes to having grain that you know you have to move from a quality standpoint.

Yeager: Record large crop, is it too cheap right now? And can it go lower?

Setzer: Everything can always go lower. I don't necessarily think it's too cheap. I think we found an equilibrium in price unfortunately. It's boring to watch but I think it is where it is. We have a lot going on. I think today's report didn't really, I can't say it was bullish, of course, but I can't necessarily say it was bearish. The one thing it did is it got that boogeyman, when you were scared as a kid and your parents came in and flipped on the light and it was just a curtain casting a shadow, that's where we're at right now. This report is gone, the boogeyman is out from under our bed, we have nothing looming that could be considered incredibly bearish anytime soon, which could allow some folks to come back in and start buying. We've got those positives out there, metals are up big, the commodity index is going up, crude is higher. We've got some things out there that would indicate that people may want to come in and start buying again, those things that hurt when you drop them on your toe, and corn and wheat and beans would be one of those.

Yeager: Speaking of beans, they were up 10 and a half just today. But really they were down 20 cents going into today. What do we need to do with soybeans? Is it time to make a sale?

Setzer: Soybeans are rough. New crop beans are, everything is difficult right now. If you have old crop beans and you're paying commercial storage you've got to be aware of what is going on in South America. The Brazilian crop is huge. Today we were able to really kind of take and absorb a really large export projection cut, the USDA cut our expected exports 65 million bushel, it took us to below last year's numbers. So we can kind of lose that storyline of exports, they're telling us that we're going to be bigger and we're less and blah, blah, blah. But the reality is the Brazilian crop continues to get larger, expectations that way, the Argentine crop may get a little bit smaller but that impacts meal in the global market more so than whole beans. Brazil is our biggest export competitor and they will continue to be that way. So to continue to pay bean commercial storage especially and hope for something to happen is going to be very difficult. New crop beans closed just under $9.85 on the November today. I've been saying for quite some time anything above $9.85 towards that $10 mark you have to be looking at. Unfortunately for a lot of folks that may be below the cost of production and so there's some tough decisions that have to be made about rotation and things like that.

Yeager: We have one of those questions that we will get to in Market Plus. And another thing we'll get to in Market Plus is talk about that cotton market that has had a really good week. But we need to get to the animals a little bit. Let's talk livestock. Cattle, kind of in a choppy market in this area. Is it weaker sales that is the big thing? Packer demand? Where are we at? What is causing this?

Setzer: We've seen the cash market kind of take a little bit of a hit. It seems like there was this big conversation about do you front run? When the cash market improves do you bring a bunch of cattle into the marketplace? And I think we saw that. I think we saw packer needs get filled and so they slammed cattle, cash cattle prices down $2, $3 in one fell swoop. The hardest thing right now with fats is that you're seeing lower highs and lower lows and so that could indicate a little bit of perhaps a downward trend as we move forward. But the fact remains demand is huge and I think we're going to chew through some of these supplies that we've seen. Everyone likes to talk about the increase in placements and things like that. But we're working our way through the fire cattle, the weather cattle that were brought into feed yards and things like that. So if we start to see some of these on-feed numbers, if these on-feed numbers start to move a little bit lower then I think we'll realize that the supply isn't perhaps as burdensome as anticipated and hopefully we'll find a bottom here. But for the time being we're going to be pretty choppy back and forth.

Yeager: So the same, we kind of covered feeders a little bit graphically there while you were discussing. Do you buy that there is, positive on the week, but are you thinking bearish tendencies are forming in that market as well?

Setzer: Not necessarily. I think the USDA indicated that demand is going to continue. They anticipate supply will continue. But I think the fact remains if we can find an equilibrium in cash value and get these rally opportunities that are showing up that seem to be relatively common people are still going to want to be owning these feeders. And that's the thing is once you get a taste for beef it doesn't go away. And if we can continue to see into our export market and see that continued pace then we'll see that form support underneath the cash, which will continue to drive those feeders, at least keep them supported if not push them higher as we move ahead.

Yeager: Alright, hog market as we close out here. November of '17 the value of exports it was a record. Is that what is pushing that market lower kind of taking some profit or what's happening?

Setzer: Well, we saw the hog market really kind of work its way higher and higher and higher. I think, I've always told my customers that you can't build a house of cards straight up, it tends to fall, and so to have a little bit of correction in that market I don't think was a bad thing. Cash values remain supported and continue to firm. Demand is huge. Of course our kill pace is reasonable. We could see a little bit of a downturn in the short-term but I think long-term we've found some support. The worst thing with hogs everyone always asks me should I protect my downside? And I think anyone that has been in the hog market for more than a year understands that you always protect your downside in hogs because you can wake up on a Tuesday and for no apparent reason we can be into a downtrend that is severe and very hurtful. So it's something to be aware of. Hogs have been moving higher, value is good, demand is there, our export demand is solid and will continue to be as such. But we just want to make sure that if you have some significant risk out in the deferreds you're not completely riding that to see what happens in the next turn. It's just like in anything else, if you have profit on the table definitely take a little bit off so you aren't completely gambling.

Yeager: Alright. You get to answer this question yes or no. Is the dollar going lower?

Yeager: That will do it for the broadcast portion of this television program we call Market to Market. However, we will keep the conversation going including answering more of your questions, we’ve got a lot of them, during our Market Plus segment which is available in podcast and video form on our website. And while you're there check out the link to our Flipboard magazine. It's the Market to Market reading material. Each day our producers update the collection of news that they are reading and put it in one convenient location just for you. Join us again next week when we'll explore the fight to rescue those swept away by the opioid epidemic in rural America. So until then, thanks for watching. I'm Paul Yeager. Have a great week.

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